Buy Micron Heading into Q2 Earnings with MU Stock Up 20% in 2019?

Shares of Micron Technology MU have surged 20% so far this year, to outpace its industry’s comeback. Clearly, many stocks are up in 2019 as the market tries to bounce back from its late 2018 downturn. The question is can Micron stock continue to climb after the firm reports its quarterly earnings results on March 20, as chip firms face a downturn?

Overview

Micron’s dynamic random access memory, better known as DRAM, business helps drive the personal computer industry. The Boise, Idaho-based company also produces chips used to help store data in cell phones and other devices, called NAND flash memory, along with other products and solutions. Micron is coming off a fiscal first quarter that saw its profit jump 23%.

Despite that bottom-line growth, Micron reduced its full-year spending plans on the back of lower-than-expected demand in the historically cyclical semiconductor market. Investors might remember that chip giant Nvidia NVDA dramatically lowered its holiday quarter guidance, after it, along with the likes of Advanced Micro Devices AMD and others, suffered from a downturn in cryptocurrency-related demand.

Nvidia CEO Jensen Huang said that the time that the fourth quarter “was an extraordinary, unusually turbulent, and disappointing quarter.” Micron clearly operates a different business, but the firm faces exposure to weakness in the PC and smartphone markets, which has impacted giants like Apple AAPL.

Furthermore, Micron and others like Western Digital WDC, look poised to be hurt be falling memory chip prices, which are projected to drop far more than expected this year, according to Susquehanna Financial Group analyst Mehdi Hosseini. “We expect significant deterioration in memory margin profiles by a much greater magnitude than what is dialed into consensus,” the analyst wrote in a note to clients in February.

“Our field checks last week suggest worse than expected ASP (average selling price) trends for both DRAM and NAND.”

Price Movement

As we mentioned at the top, Micron stock has jumped just over 20% in 2019, which comes in above its industry’s 15% climb. Still, despite the recent positivity, shares of MU have tumbled 31% during the last 12 months. And the chart below helps us see just how up and down Micron stock has been over the last decade, even though it has destroyed its industry and chip giants such as Intel INTC.

Outlook & Earnings Trends

Looking ahead, our current Zacks Consensus Estimate calls for Micron’s fiscal Q2 2019 revenue to tumble 18.8% to reach $5.97 billion. Plus, the company’s Q3 revenues are projected to fall over 27%, with full-year revenues expected to sink 16%. More specifically, the company’s vital DRAM unit revenue is expected to fall roughly 23% from $5.54 billion in the year-ago period to $4.027 billion.

Meanwhile, at the bottom end of the income statement, Micron’s adjusted quarterly earnings are projected to plummet 39.4% to hit $1.70 a share. And this negative trend is expected to continue over the next two years. MU’s current full-year EPS figure is projected to fall 35.3%, with fiscal 2020’s adjusted earnings expected to come in 54% lower than our 2019 estimate.

We can also see that Micron’s consensus earnings estimates have continued to come down for Q2, Q3, fiscal 2019, and fiscal 2020 throughout the quarter. Micron’s 2019 earnings estimate has fallen over 22% in the last 90 days, while Q2’s EPS estimate is down 32%.

Bottom Line

Micron stock rested up 0.73% through morning trading Thursday to sit at $38.21 a share. This marked a 40% downturn from MU’s 52-week high of $64.66 a share and gives the stock plenty of room to run if the company is able to impress investors. The company is also trading at 6.9X forward 12-month Zacks Consensus EPS estimates at the moment, which marks a significant discount compared to its industry’s 12.8X average and the S&P’s 16.5X.

Still, Micron is currently a Zacks Rank #4 (Sell) based, for the most part, on its negative earnings estimate revision activity. Plus, we can see that the company’s fiscal 2019 and 2020 estimates are hardly inspiring, especially on the bottom line. Shares of MU could climb heading into earnings and might jump if the firm is able to surpass estimates. But we should note that Nvidia stock has dipped since it posted better-than-projected results in mid-February.

Micron is scheduled to release its Q2 fiscal 2019 financial results after the closing bell on Wednesday, March 20. Make sure to head back to Zacks for a complete breakdown of the company’s actual metrics.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.